Fed Holds but Hawkish; Warsh Downplays Forward Guidance

## Fed Holds Rates, Sends Hawkish Signal Topic: Fed holds rates, shortens statement to remove easing bias Fed Chair Warsh pledged to restore price stability after the first policy meeting of his tenure, as officials held rates steady and signaled support for rate hikes this year. "Persistently high prices are a burden on Americans, but the past does not necessarily determine the future. Officials are clear and united, and the FOMC is committed to price stability," Warsh said at the press conference. Warsh also downplayed the significance of his colleagues' latest rate projections. The dot plot showed that 9 of 19 officials expect at least one 25-basis-point rate hike this year, with 6 expecting at least two hikes. Another 9 expect rates to stay unchanged or be cut. "Other officials are not very confident about their projections either. Many acknowledge high uncertainty about the economic outlook," Warsh said. When asked about the rate debate at the meeting, Warsh described it as a "healthy internal debate." The new chair, a longtime critic of so-called "forward guidance," said he personally declined to submit a rate projection. ## FOMC Statement and Policy Stance Changes The FOMC voted unanimously Wednesday to keep the federal funds rate target range at 3.5% to 3.75%. After the decision, Treasuries were sold off, the dollar rose, and stocks fell. By the end of Warsh's press conference, traders priced in a 100% probability of a rate hike by October. In the post-meeting statement, officials said inflation remains elevated and reaffirmed their commitment to price stability. They continued to describe economic growth as "solid." Officials also said productivity growth and capital investment are robust. The statement was more concise than previous ones. Given Warsh's promise to reform Fed communication strategy, this brevity may signal a future change. ## Warsh Pushes Fed Institutional Reform Warsh, upon taking office last month, promised to drive "institutional change" at the central bank. In his opening remarks, he announced the formation of working groups to evaluate five areas of Fed operations and study possible reforms. These groups will focus on communication mechanisms, the balance sheet, the Fed's "use of and reliance on existing data sources," productivity and employment, and the central bank's "inflation framework." Warsh said the groups will include external experts and be supported by Fed staff. In response to questions, he ruled out revisiting the 2% inflation target. "I see no reason to revisit that issue until we have proven we have the ability and determination to achieve the 2% target," he said. ## Economic Projections Adjusted, Market Reaction Policymakers made several adjustments to the March economic projections, raising the median inflation forecast for this year from 2.7% to 3.6% and the 2026 core inflation forecast from 2.7% to 3.3%. At the same time, officials cut the median 2026 GDP growth forecast from 2.4% in March to 2.2%. They lowered the median unemployment rate forecast for end-2026 from 4.4% to 4.3%. When asked about the Fed's decision to hold rates steady, Trump told reporters in France Wednesday: "It's fine, whatever." Asked about potential rate hikes, Trump said: "Unbelievable. It would only drag down the US economy, and it's very unusual." He added: "Now we have a very good person over there. I will respect his views."